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Re: Stocks pile on losses amid worries on economy

Originally Posted by AdamT

Meanwhile, in case y'all didn't notice, the markets are still plunging. Congress squabbling over whether we can reduce the defict by $3 or $4 trillion dollars over 10 years ... and the markets have shed $4.5 trillion in the past two weeks....

How are the stocks of TEA companies doing?

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There are two novels that can change a bookish fourteen-year old's life: The Lord of the Rings and Atlas Shrugged. One is a childish fantasy that often engenders a lifelong obsession with its unbelievable heroes, leading to an emotionally stunted, socially crippled adulthood, unable to deal with the real world. The other, of course, involves orcs.... John Rogers

Re: Stocks pile on losses amid worries on economy

Without doubt, bad policy has contributed to the market losses. Specifically, the political dysfunctionality demonstrated in Washington and the lack of credible fiscal consolidation program has reinforced concerns that the U.S. is either unwilling or unable to take necessary policy decisions to tackle its big challenges. But the problem is broader than that. There is a structural flaw in the nation's economic model that is increasingly being exposed: overreliance on leverage. PIMCO CEO and Co-
CIO Mohamed El-Erian succinctly describes the problem in a CNBC piece:

"The key challenge is how to safely delever Western economies that became too dependent on credit and debt," El-Erian said. "You need growth. Unfortunately there are too many structural impediments to growth."

..."We didn't solve the medium-term fiscal issues. In fact we made it worse," he said. "There are significant structural impediments. Until we see structural solutions out of Washington, (slow) growth will not allow us to delever fast enough."

The ratio of domestic nonfinancial debt to GDP vividly illustrates the overdependence on leverage:

1980: 1.418
1990: 1.868
2000: 1.825
2010: 2.486

These numbers show that for every dollar of GDP, there was $1.418 in domestic nonfinancial debt in 1980. In 2010, there was $2.486 in domestic nonfinancial debt for every dollar of GDP. Put another way, every dollar of GDP growth in the 1980-2010 was accompanied by an increase of $2.740 in domestic nonfinancial debt. In the 2000-10 period that coincided with the dramatic run-up in the housing bubble, every dollar of GDP growth was accompanied by a $3.923 increase in domestic nonfinancial debt.